October Manufacturing ISM Report On Business®;PMI at 50.9%;New Orders, Employment Growing;Production, Inventories Contracting;Supplier Deliveries Slowing

TEMPE, Ariz.--Economic activity in the manufacturing sector expanded in October for the ninth consecutive month, while the overall economy grew for the 72nd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business^®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “Manufacturing growth slowed in October to its lowest level since March 2007. While the New Orders Index continued to grow and the Production Index fell below 50 for the first time since January 2007, the Employment Index grew slightly, signaling continuing strength in manufacturing employment. It does appear that the impact of the slow down in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength in new export orders.”

TOP PERFORMING INDUSTRIES

The nine industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

WHAT RESPONDENTS ARE SAYING …

“Very busy fourth quarter.” (Primary Metals)
“We are experiencing a slight slow down of current orders, but see this as temporary.” (Plastics & Rubber Products)
“Business is softer than forecasted, market recovery appears to be delayed.” (Transportation Equipment)
“Heavy truck industry is not seeing signs of a recovery yet.” (Fabricated Metal Products)
“Business conditions are still sluggish. International orders are keeping us busy!” (Machinery)

MANUFACTURING AT A GLANCE OCTOBER 2007

Index	Series Index Oct.	Series Index Sept.	Percentage Point Change	Direction	Rate of Change	Trend(a) (Months)

PMI	50.9	52.0	-1.1	Growing	Slower	9
New Orders	52.5	53.4	-0.9	Growing	Slower	11
Production	49.6	54.6	-5.0	Contracting	From Growing	1
Employment	52.0	51.7	+0.3	Growing	Faster	7
Supplier Deliveries	50.6	51.9	-1.3	Slowing	Slower	2
Inventories	47.2	41.6	+5.6	Contracting	Slower	15
Customers’ Inventories	54.0	50.0	+4.0	Too High	From Unchanged	1
Prices	63.0	59.0	+4.0	Increasing	Faster	10
Backlog of Orders	46.0	51.0	-5.0	Contracting	From Growing	1
Exports	57.0	54.5	+2.5	Growing	Faster	59
Imports	47.5	53.0	-5.5	Contracting	From Growing	1
OVERALL ECONOMY Manufacturing Sector				Growing	Slower	72
OVERALL ECONOMY Manufacturing Sector				Growing	Slower	9

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda; Copper; Copper Products; Corrugated Containers (2); Flour (3); Methanol; Oil; Steel — Hot Rolled; and Wheat (2).

Commodities Down in Price

Aluminum is the only commodity reported as down in price.

Commodities in Short Supply

Methanol and Sulfuric Acid (3).

Note: The number of consecutive months the commodity is listed is indicated after each item.

OCTOBER 2007 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing grew at a slower rate in October as the PMI registered 50.9 percent, a decrease of 1.1 percentage points when compared to September’s reading of 52 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that both the overall economy and the manufacturing sector are growing. “The past relationship between the PMI and the overall economy indicates that the PMI average for January through October (52.8 percent) corresponds to a 3.4 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for October (50.9 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”

THE LAST 12 MONTHS

Month	PMI	Month	PMI

Oct 2007	50.9	Apr 2007	54.7
Sep 2007	52.0	Mar 2007	50.9
Aug 2007	52.9	Feb 2007	52.3
Jul 2007	53.8	Jan 2007	49.3
Jun 2007	56.0	Dec 2006	51.4
May 2007	55.0	Nov 2006	49.9
Average for 12 months – 52.4 High – 56.0 Low – 49.3

New Orders

ISM’s New Orders Index registered 52.5 percent in October. The index is 0.9 percentage point lower than the 53.4 percent reported in September. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars). Eight industries reported increases during October: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Computer & Electronic Products; and Chemical Products.

New Orders	%Better	%Same	%Worse	Net	Index

Oct 2007	18	64	18	0	52.5
Sep 2007	29	51	20	+9	53.4
Aug 2007	27	52	21	+6	55.3
Jul 2007	30	54	16	+14	57.5

Production

ISM’s Production Index registered 49.6 percent in October, which is 5 percentage points lower than the 54.6 percent reported in September. October reverses a trend of eight consecutive months of production growth for manufacturers. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. Of the industries reporting in October, seven registered growth: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

Production	%Better	%Same	%Worse	Net	Index

Oct 2007	18	60	22	-4	49.6
Sep 2007	31	53	16	+15	54.6
Aug 2007	26	56	18	+8	56.1
Jul 2007	26	56	18	+8	55.6

Employment

ISM’s Employment Index registered 52 percent in October, which is an increase of 0.3 percentage point when compared to September’s reading of 51.7 percent. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The six industries reporting growth in employment during October are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Transportation Equipment.

Employment	%Higher	%Same	%Lower	Net	Index

Oct 2007	17	66	17	0	52.0
Sep 2007	14	72	14	0	51.7
Aug 2007	10	79	11	-1	51.3
Jul 2007	15	70	15	0	50.2

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations decreased 1.3 percentage points in October as the index declined to 50.6 percent. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in October are: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index

Oct 2007	7	87	6	+1	50.6
Sep 2007	8	88	4	+4	51.9
Aug 2007	6	90	4	+2	50.0
Jul 2007	7	91	2	+5	52.0

Inventories

Manufacturers’ inventories registered 47.2 percent in October, which is 5.6 percentage points higher than September’s reading of 41.6 percent. This is the 15th consecutive month of inventory liquidation. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars). The six industries reporting higher inventories in October are: Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Wood Products; and Furniture & Related Products.

Inventories	%Higher	%Same	%Lower	Net	Index

Oct 2007	17	57	26	-9	47.2
Sep 2007	13	57	30	-17	41.6
Aug 2007	13	67	20	-7	45.4
Jul 2007	11	71	18	-7	48.5

Customers’ Inventories(b)

The ISM Customers’ Inventories Index registered 54 percent in October, an increase of 4 percentage points when compared to September. The index indicates that respondents believe their customers’ inventories are too high at this time. Seven industries reported higher customers’ inventories during October: Textile Mills; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; and Transportation Equipment.

Customers’ Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index

Oct 2007	73	20	68	12	+8	54.0
Sep 2007	76	16	68	16	0	50.0
Aug 2007	70	13	72	15	-2	49.0
Jul 2007	71	18	66	16	+2	51.0

Prices(b)

In October, the ISM Prices Index registered 63 percent, indicating manufacturers are paying higher prices on average when compared to September. While 33 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 60 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In October, 13 industries reported paying higher prices: Paper Products; Food, Beverage & Tobacco Products; Textile Mills; Wood Products; Plastics & Rubber Products; Chemical Products; Primary Metals; Printing & Related Support Activities; Petroleum & Coal Products; Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; and Transportation Equipment.

Prices	%Higher	%Same	%Lower	Net	Index

Oct 2007	33	60	7	+26	63.0
Sep 2007	30	58	12	+18	59.0
Aug 2007	33	60	7	+26	63.0
Jul 2007	38	54	8	+30	65.0

Backlog of Orders(b)

ISM’s Backlog of Orders Index registered 46 percent in October, 5 percentage points lower than the 51 percent reported in September. While order backlogs have been growing modestly in recent months, this month’s decline represents a significant change. Of the 83 percent of respondents who reported their backlog of orders, 16 percent reported greater backlogs, 24 percent reported smaller backlogs, and 60 percent reported no change from September. The five industries reporting an increase in order backlogs in October are: Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Transportation Equipment.

Backlog of Orders	% Reporting	%Greater	%Same	%Less	Net	Index

Oct 2007	83	16	60	24	-8	46.0
Sep 2007	84	24	54	22	+2	51.0
Aug 2007	84	19	63	18	+1	50.5
Jul 2007	86	23	58	19	+4	52.0

New Export Orders(b)

ISM’s New Export Orders Index registered 57 percent in October, an increase of 2.5 percentage points when compared to September’s index of 54.5 percent. This is the 59th consecutive month of growth in export orders. The 10 industries reporting growth in new export orders in October are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products.

New Export Orders	% Reporting	%Higher	%Same	%Lower	Net	Index

Oct 2007	77	19	76	5	+14	57.0
Sep 2007	76	16	77	7	+9	54.5
Aug 2007	79	20	74	6	+14	57.0
Jul 2007	80	20	73	7	+13	56.5

Imports(b)

Imports of materials by manufacturers failed to grow during October as the Imports Index registered 47.5 percent, 5.5 percentage points lower than the 53 percent reported in September. This decline ends 69 consecutive months of growth in imports as measured by this index. The six industries reporting growth in import activity for October are: Printing & Related Support Activities; Plastics & Rubber Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; and Chemical Products.

Imports	% Reporting	%Higher	%Same	%Lower	Net	Index

Oct 2007	77	8	79	13	-5	47.5
Sep 2007	82	16	74	10	+6	53.0
Aug 2007	82	16	73	11	+5	52.5
Jul 2007	82	20	69	11	+9	54.5

(b) The Backlog of Orders, Prices, Customers’ Inventories, Imports and New Export Orders Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures decreased 2 days to 123 days. Average leadtime for Production Materials increased 1 day to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies decreased 4 days to 22 days.

Percent Reporting

Capital Expenditures	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Oct 2007	21	8	12	23	21	15	123
Sep 2007	20	9	10	24	22	15	125
Aug 2007	19	10	16	23	22	10	110
Jul 2007	25	8	12	18	25	12	115

Production Materials	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Oct 2007	21	38	26	10	4	1	48
Sep 2007	21	40	25	9	4	1	47
Aug 2007	20	38	29	8	4	1	48
Jul 2007	22	38	22	12	4	2	51

MRO Supplies	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Oct 2007	54	33	9	4	0	0	22
Sep 2007	53	32	8	6	0	1	26
Aug 2007	45	41	11	3	0	0	24
Jul 2007	50	38	10	2	0	0	22

About this Report

The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Manufacturing ISM Report On Business^® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with varying weights: New Orders – 30%; Production – 25%; Employment – 20%; Supplier Deliveries – 15%; and Inventories – 10%.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI in excess of 41.9 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.9 percent, it is generally declining. The distance from 50 percent or 41.9 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

Responses to Buying Policy reflect the percent reporting the current month’s leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials; Capital Expenditures; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing ISM Report On Business^® is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM’s mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Manufacturing ISM Report On Business^®is posted on ISM’s Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing ISM Report On Business^® featuring the November 2007 data will be released at 10:00 a.m. (ET) on Monday, December 3, 2007.